The 8 MNPI control gaps SEC examiners keep flagging

The April 2022 SEC Risk Alert on adviser MNPI compliance reads like a list of what examiners expect to find missing. If you run expert calls at a fund without a large legal team, treat it as a checklist.

The eight deficiencies that keep coming up

1. Written policies not tailored to the adviser's actual business. Generic templates fail.
2. Failure to identify and monitor all access persons, especially analysts running expert calls.
3. Weak or nonexistent restricted lists for issuers discussed on calls or under NDA.
4. No documentation around expert network calls, or notes so thin they are useless.
5. Minimal testing of personal trading against research interactions.
6. No pre-approval process for expert calls.
7. No review of the expert network's own compliance program.
8. Inadequate training on which questions are off-limits.

The legal frame, in three lines

Section 204A of the Advisers Act requires written MNPI policies reasonably designed for your business. Rule 206(4)-7 requires a written compliance program, a designated CCO and a review at least annually. Rule 204A-1 is the code of ethics piece: standards of conduct and personal securities reporting.

What a workable program looks like at a smaller fund

Six steps, and none of them need a Fortune 500 legal department.

1. Risk assessment. Map every channel MNPI could enter through. Expert networks, bankers, board seats, alternative data, conferences.
2. Written policy. Define MNPI in plain language. List prohibited questions. No unreleased financials. No current-quarter bookings. No deal pipeline tied to public names.
3. Pre-clearance and logging. Every call pre-approved. Log date, participants, topics, issuers discussed, red flags.
4. Monitoring and testing. Compare access-person trading against recent calls and restricted lists.
5. Training. Onboarding plus annual refreshers, documented.
6. Periodic review, at least annually.

Cadence that survives an exam

Annual: full policy review, refresh restricted-list criteria, retrain access persons. Quarterly: test personal trading against call logs, sample expert call notes. Monthly: update restricted and watch lists.

Escalation path

If an analyst thinks MNPI came up on a call: stop the call, email compliance, document the interaction, add the issuer to the restricted list, halt trading in that name until compliance clears it.

Examiners request multi-year data. Call logs, personal trading reports, restricted list history, communications samples. Build the process assuming they will ask.

At your shop, does an analyst need pre-approval before every expert call, or only for names already on the watch list?